There are different types of banks and financial institutions people can use. The different types of banks also have there different functions. If you want to invest in banks and you are confused, this article will help you because we will discuss and show you the list of 8 common types of banks, the roles they play in the economy and all you need to know about the common types of banks.
What Are Financial Institutions And Banks?
A Financial Institution is any company that is engaged in the business of dealing with the financial and monetary transactions of people like loans, investments, deposits, and currency exchange. It also includes a wide range of business operations carried out within the financial services sector including brokerage firms, banks, insurance companies, and investment dealers. Financial institutions can vary in size, geographical location and scope.
Banks are financial institution that is licensed to accept deposits from members of the public and creates a demand deposit while they use such deposits to create loans. The lending activities in the bank can be done directly or indirectly through the capital markets. The activities of banks are controlled by the national government or the Central bank of the country. The types of banks include commercial, investment and retail banks. Banks interface more with individuals and entities while financial institutions focus on working with institutional clients. You can check here for more details about banks
List Of 8 Common Types Of Banks You Need To Know
The following is the list of 8 common types of banks and all you need to know about their operations.
The Central Bank is among the list of 8 common banks and it is also known as the head in charge of other banks in any country. They manage the money supply in a country or in a series of nations as the case may be. The Central bank supervises the activities of commercial banks, they set the interest rates that commercial banks and other banks should charge, and control the flow of currency in any country.
One of the duties of the Central bank is to implement the government’s monetary policy goals. These goals may involve combining deflation or keeping prices from fluctuating. They can lend money in tough economic times to keep the monetary system from collapsing. In some countries like the United States, the Federal Reserve System is the central bank. The European Central Bank regulates the economic activity of the 28 countries in the eurozone.
Commercial banks are among the list of 8 common types of banks. It is a type of financial institution that accepts deposits from the public and gives out loans for the purposes of consumption and investment to make a profit. They help everyday consumers and concentrate on supporting businesses. Both large corporations and small businesses can easily be turned to commercial banks if they need to open a checking or savings account, borrow money, access credit or even transfer funds to companies in foreign markets.
This is among the list of 8 common types of banks and can either be a commercial or retail bank. The difference between cooperative banks and other types of banks and entities in the financial sector is that they are typically local or community base associations with members that help determine how the business operations are managed. They are managed based on the collective decisions of the members and they give loans, open bank accounts and do other activities. Cooperative banks are operated in different countries of the world even in the United States of America. Cooperative banks usually take the form of credit unions.
A credit union is among the list of 8 common types of banks and is similar to a commercial bank. It is a member-owned nonprofit financial cooperative. They generally provide services like retail banking, issuing loans, checking accounts, deposit accounts and provision of credits and other financial services to their members. The major difference between banks and credit unions is that while banks are profit-making companies, credit unions are non-profit-making companies.
The decision-making in Credit unions is done based on the opinions of selected board members. The Credit union serve people who are related to a particular group, may be living in the same area, people from the low-income community or members of the armed service force. Credit Unions charge lower fees and low-interest rates when they give out loans to people and this is part of the reason why so many people consider opening an account at a credit union.
An investment bank is among the list of 8 common types of banks. It is a type of financial services company that serves as a middleman in large and complex financial transactions. Investment banks get involved when a company is preparing to start up or launch its initial public offering(IPO) and when a corporation merges with a competitor. Investment banks can also act as a broker or financial advisers to large institutional clients like pension funds.
Some types of well-known investment banks include Morgan Stanley and Goldman Sachs. They have the responsibility of managing the trade of stocks, bonds and other securities between investors and companies on the one hand. On the other hand, they can also focus their energy on advising individuals and corporations who need to reorganize their companies through mergers and acquisitions, financial guidance, management of investment portfolios or raising money for certain businesses and the federal government.
A Retail bank is among the list of 8 common types of banks and it is also known as a consumer bank. or personal bank. Retail banks provide banking services to the general public, such services include the opening of bank accounts, and issuing of loans, credit cards, and insurance. They can also start checking accounts. and give loans to small-scale businesses.
There are different types of retail banks like traditional brick-and-mortar brands that customers can easily access in person, online or even through their mobile phones. Other retail banks may also make their tools and accounts available online or through their mobile apps.
Savings And Loan Associations
Savings and loans associations are among the list of 8 common banks but they are not banks. They are referred to as thrifts or S$Ls. They are the type of financial institution that primarily uses the deposited savings of other customers to create mortgages, refinance loans and other home loans that the bank customers can use to build a renovate their homes.
Some of these thrifts have traditional functions and some are publicly traded companies. Members of this group can earn more interest from their savings than what is obtainable at other commercial banks. Previously, the activities of savings and loan banks were not regulated by the government, but the federal office of Thrift Supervision is presently in charge of regulating and overseeing their activities.
This is among the list of 8 common types of banks and can be referred to as a collection of non-financial intermediaries that provide services that are similar to the traditional commercial banks but their operations are outside normal banking regulations like other banks. They deal with credit and different kinds of assets. Shadow banks get their funding by borrowing it, connecting with investors or making their own funds instead of using money issued by the central bank.
Shadow banks have two types which are Money market funds and hedge funds. Recently, there have been a lot of controversies about shadow banks because people believe they play a role in the mortgage crisis that has led to the General recession.
As can be seen from above, different banks have different functions and the purposes they serve their customers. We have discussed the list of 8 common banks and we have also noticed the types of financial institutions and how each of them affects the market in a unique way. When you know the difference between the different types of banks, it will be easier for you to use and you will also see their importance and the part they play in our economic system.